Chartist Talks | Save your profits until Nifty climbs 22,550-22,600 zone with conviction, says Milan Vaishnav

"No runaway up-move should be expected unless the Nifty moves past the 22,550-22,600 zone convincingly and with a strong thrust," says Milan Vaishnav, CMT, MSTA, founder of Gemstone Equity Research & Advisory Services.

In an interview to Moneycontrol, he said it would be meaningless to chase the up-move blindly. "Any further up-move should be chased only after we see the Nifty 22,550-22,600 zone with conviction. Until this happens, more emphasis should be laid on the protection of profits at higher levels."

Here's how the interaction progressed.

What do you make out of the monthly F&O expiry data as well as technical chart studies? What is your general Nifty outlook for the April series?

In the week ended March 15, the Nifty had closed near its low point after coming off over 500 points from its lifetime high of 22,526. This level, unless taken out comprehensively and with convection, will stay as an intermediate top for the markets. Further to this, the past several moves of incremental highs have come with a strong bearish divergence of the RSI (relative strength index). This divergence emerged as while the price made higher highs, the RSI did not.

The expiry day of the March derivative series saw maximum open interest (OI) stay concentrated steadfastly between 22,500 and 22,600 levels for the April 4 expiry. This is likely to ensure that the Nifty shall continue to find resistance so long as it stays below the 22,550-22,600 levels. The options data corroborates the technical pattern analysis as well, where the Nifty finds a strong pattern resistance in the 22,550-22,600 levels.

No runaway up-move should be expected unless the index moves past the 22,550-22,600 zone convincingly and with a strong thrust.

What is your options strategy for the Nifty and Bank Nifty for the next weekly expiry, after reading F&O as well as technical charts?

I would continue each up-move in Nifty up to 22,550-22,600 levels to book and protect profits at higher levels. It would be meaningless to blindly chase the up-move; any further rise should be chased only after we see the Nifty in the 22,550-22,600 zone with conviction. Until this happens, more emphasis should be laid on the protection of profits at higher levels.

Bank Nifty is likely to stay in a defined trading range between 48,300 and 46,400. Expect the Nifty Bank index to oscillate and trade in this range without adopting any sustained directional bias. The only positive thing is that this range is wide enough to give us trading opportunities on either side.

Coming to Options strategy. I would use short strangles for both Nifty and Bank Nifty. I would go for a short strangle for Nifty (selling CE 22,600 and selling PE 22,000). This is likely to see a yield of approximately 3 percent per lot on the capital deployed.

For Bank Nifty, I would go for a short strangle again (selling 48,000 CE and 46,500 PE). This would result in a likely yield of around 2.50 percent per lot on the capital deployed.

The short strangle strategy - Sell an out-of-the-money (OTM) Put and an out-of-the-money Call at the same time, with same expiry date.

Which are the top two stocks on your radar for next week on the basis of charts?

I have an eye on infrastructure and FMCG space. I would be looking at Larsen & Toubro and ITC. L&T has shown a breakout from a symmetrical triangle. Though Symmetrical Triangles are neutral formations, they often act as continuation patterns. With a strong support base at Rs 3,625-3,650, L&T is expected to move higher towards Rs 3,950-4,000 levels even if it encounters some short-term consolidation in a limited range.

ITC, on the other hand, is seen forming a strong base in Rs 410-425 zone. Over the past days, with each upmove, the stock has also seen very high percentage of delivery volumes. The RSI also shows a bullish divergence which hints at a successful marking of a base for this stock. One can expect Rs 435-442 levels on a short-term horizon for this stock.

Are the charts telling you that the Nifty FMCG index is on the verge of a breakout?

No, there is no breakout at all. In fact, the FMCG index started its upmove when it crossed above in December last year. Now, after forming the high of 57,966, this index has seen retesting its original breakout level and has seen taking support at the extended trendline. Also, over the past few weeks, it is consolidating and trying hard to form a base for itself.

Importantly, it should be noted that the sector is inside the lagging quadrant of the RRG (relative rotation graph); however, it has seen improving its relative momentum against the broader markets. The 50- and 100-DMA levels for the FMCG index converge near 54,339-54,288 levels which is the immediate resistance zone for the index.

If the FMCG Index moves past this zone, we will see fresh momentum on the upside in this space, and the group with then start relatively outperforming the broader markets. Until this happens, expect this space to consolidate and work on forming a base for itself after which a technical rebound can be expected.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.